Section 7520 Rate: Definition and How It Works in California

By Eric Ridley, attorney, Ridley Law. Updated October 2026.

The section 7520 rate is the interest rate the IRS requires for valuing annuities, life estates, terms of years and remainder interests. It equals 120 percent of the federal midterm rate, rounded to the nearest 0.2 percent, and changes every month. For October 2026 it is 5.6 percent.

How it works in California

The rule is 26 U.S.C. § 7520(a), and the rate is set for the month in which the valuation date falls. When a charitable deduction is allowed for part of the property, the taxpayer can elect the rate for either of the two months before. The IRS publishes the rate monthly in a revenue ruling, and Rev. Rul. 2026-19 set it at 5.60 percent for October 2026. Ridley Law’s comparison of estate tax planning strategies shows where the rate enters each technique.

California families use the same federal rate. It values the annuity in a grantor retained annuity trust and the charity’s interest in a charitable lead or remainder trust, among others. California has no separate rate for these calculations.

Why it matters

For a GRAT or CLAT, the rate is the hurdle to beat. The gift is the value put in minus the present value of the annuity, so a low rate makes the annuity worth more and the taxable gift smaller, and any growth above the rate passes to family. A higher rate does the reverse and favors techniques where the family’s interest is the one being discounted, such as a qualified personal residence trust. A GRAT funded in a month with a 5.6 percent rate needs the assets to grow faster than 5.6 percent a year to move anything.

Common mistakes

Using the wrong month’s rate for the valuation date. Forgetting the two-month lookback election for charitable trusts when an earlier month’s rate is better. And assuming the rate floats over the life of a trust. The rate in effect on the funding date fixes that transfer’s value.

Related terms

• Grantor Retained Annuity Trust (GRAT): the GRAT annuity is valued with the section 7520 rate.
• Charitable Lead Trust: a CLAT’s lead interest is valued with the same rate.
• Charitable Remainder Trust: the charitable remainder deduction is also computed with the section 7520 rate.

Part of the California estate planning glossary. For the full treatment, see Estate Tax Planning Strategies Compared: 22 Techniques Side by Side.